Exchange Rate in Korea
Korea - Exchange Rate
Won sinks to over one-decade low in March, but strong fundamentals should drive a rebound
On 19 March, the Korean won (KRW) ended the day at 1,285 per USD, marking the lowest level since 14 July 2009. The KRW gained back some ground the following day after the government implemented extreme spending measures to prop up the economy and the Bank of Korea announced a bilateral currency swap arrangement with the Federal Reserve. The won consequently ended 24 March slightly stronger at 1,250 per USD; nevertheless, the KRW was still down 2.3% over the prior month, 7.5 % on a year-to-date basis and 9.6% over the same date last year.
Amid the fallout from the Covid-19 outbreak, significantly weaker economic growth prospects for this year, a sharp sell-off in the domestic stock market, monetary easing and a narrowing current account surplus all weighed on the won over the past month. The virus outbreak in Korea dented the economic outlook as quarantine measures and weaker economic activity in China—a key supplier and Korean export destination—shackled the economy and decreased demand for the won. Moreover, the Korean stock market slumped, which put further downward pressure on the won, with circuit breakers being triggered due to the extent of the losses. The virus outbreak has led to major risk re-pricing across all asset classes and raised severe liquidity concerns. Following the U.S. Fed and other major central banks, the Bank of Korea (BOK) thus chopped rates to record lows in mid-March. Furthermore, the current account surplus narrowed to the smallest level since last April in January, which likely also put pressure on the won.
Looking ahead, the recent downward pressure on the KRW should abate. On 19 March, the BOK entered a bilateral currency swap arrangement with the Fed, increasing the supply of U.S. dollars, lowering the supply of KRW and thus helping to prop up the won. Moreover, in recent days, Korea’s containment efforts have proven relatively effective, which should bolster economic prospects going forward. Furthermore, in February merchandise exports expanded for the first time since November 2018, while Korean exports up to 20 March also increased year-on-year at a healthy pace according to data from the customs office. The rebound in exports was mainly the result of a surge in semiconductor exports, boding well for the KRW outlook. In addition, as global economic sentiment sours, investors tend to favor the KRW over other riskier emerging market Asian currencies due to its solid fundamentals.
Our panel sees the KRW strengthening going forward, ending 2020 at KRW 1,184 per USD, and 2021 at 1,142 per USD
Korea - Exchange Rate Data
|Exchange Rate (vs USD)||1,173||1,208||1,071||1,116||1,156|
5 years of economic forecasts for more than 30 economic indicators.
Korea Exchange Rate Chart
Source: Thomson Reuters
|Bond Yield||1.68||1.55 %||Dec 31|
|Exchange Rate||1,156||0.21 %||Dec 31|
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January 15, 2021
At its meeting on 15 January, the Bank of Korea (BOK) kept the base rate at its record low of 0.50%, in line with market expectations. The Bank’s decision to hold came amid a rise in Covid-19 cases which is supressing activity at home.
January 4, 2021
The IHS Markit manufacturing Purchasing Managers’ Index (PMI) remained unchanged at November’s 52.9 in December, remaining above the 50-threshold that separates an improvement from a deterioration in the manufacturing sector over the previous month. The reading was led by slightly slower, but still solid, rises in output and new orders, supported by improved demand for vehicles and the recovery in external demand driven by trading partners such as Japan and China.
January 1, 2021
Merchandise exports shot up 12.6% over the same month last year in December amid solid IT demand, following November’s 4.1% increase.
December 31, 2020
Consumer prices rose 0.16% from the previous month in December, swinging from the 0.10% fall logged in November.
December 30, 2020
Industrial production increased 0.5% in November in annual terms (October: -2.0% yoy).